12 January 2021
“Death and taxes”.. goes the old saying…”neither can be avoided”. However whilst meeting our maker is somewhat destined and out of our control, paying taxes is not. Yes, tax is law, but so is tax relief and you would be amazed at how many people don’t know and/or utilitse all the different tax reliefs that are available to them.
January is the perfect time to review this. Perhaps you are just in the process of finalising that painful self-assessment return which is due shortly so you are feeling the pain of handing money over to the Chancellor. Or you are planning ahead towards the end of tax year in April and giving yourself plenty of time. Either way, below we outline a few different strategies you can consider for paying less tax this year.
Maximise your pension contributions for both you and your partner.
Pension contributions are very effective tax-reducing strategies and should be maximised where possible. Pension contributions receive tax relief up to certain limits and have the added benefit that they provide tax-free long-term growth. Given the longer-term nature of pensions, they should have a higher growth focus and therefore compound the benefits. Reducing the amount of tax relief given has long been a policy of the last few Chancellors and given the need to raise revenue over the next few years, it is easy to see this being cut again.
Use Venture Capital Trusts (VCTs) for a reduction in your income tax bill of up to £60,000 this tax year.
The reduction of the annual allowance and lifetime allowance have hit a number of higher earners hard. However, there are a number of tax vehicles where relief can be used. Venture Capital Trusts (VCTs) are pooled investments into growing companies and offer 30% income tax relief for that immediate tax year, subject to a maximum level. These investments require specialist knowledge and advice is specifically tailored to your situation.
Utilise your Capital Gains Tax allowance for both you and your partner.
The Capital Gains Tax (CGT) allowance for this year is £12,300 (up from £12,000 last year) and is for everyone no matter what level your income is. The CGT allowance is often the most ignored tax relief. Any taxable gains in accounts should be reviewed every year and optimised. Utilising these gains every year in a tax-effective way can make a huge difference in the long-term when the full use of the funds are required.
Use all the families’ ISA allowances for the year and transfer Cash ISAs.
Whilst the £20,000 ISA allowance is well known amongst most people, the limit for Junior ISAs is now up to £9,000 per year. Also, most people tend to have Cash ISAs sitting there earning virtually nothing which is a waste of the tax-free status. These cash ISAs can be transferred over into investment ISAs without impacting the £20,000 limit and made to work much harder.
Permanent Wealth Partners help working professionals achieve profound financial peace. They do this by providing absolute clarity on your current and future financial situation, build structural safety on all the risks you face and maximise growth on your investments.